California Property Laws
When going through a divorce, one of the biggest concerns people have is how their marital debt will be handled. Additionally, many people are concerned that they will be held responsible for debt incurred by their former spouses. During a divorce, debt is dealt with as part of property division. This process can be highly contentious for several reasons.
Because California is a community property state, any property or debt acquired during the marriage is considered community debt and is shared by the couple. This can be frustrating for people who feel as if they shouldn’t be required to pay back debt they see their former spouse as being responsible for.
Debts accrued before the start of the marriage (or after the date of separation) generally remain separate and are the responsibility of the person who incurred them. For example, you will not be responsible for credit card debt that your former spouse took on before the marriage.
Common types of debt couples have to deal with when divorcing:
- Car and vehicle loans
- Credit cards
- Home mortgages
- Medical debt
- Private or personal loans
- Student loans
What to Consider when Addressing Shared Debt
While it may seem fairly straightforward, debt division is a complicated process, and there is no hard and fast rule as to how it has to be split. The goal of the property division process is to ensure that marital property (and debts) are divided equitably and that both parties come out of the divorce with roughly the same value of property. However, this does not mean that everything is split directly down the middle, 50/50.
Instead, when negotiating, the couple has to consider their property and debts holistically. For example, if one person plans to keep the family home, they may also take on more debt than the other party to even things out. Similarly, if one person agrees to take on more debt, the other party may agree to give them more property or assets. The goal of the process is to find balance and equity.
Couples also need to look to any existing prenuptial or postnuptial agreements in place. These documents often have provisions for how property and debt division should be handled in the event of a divorce.
What About Student Loan Debt?
It is estimated that over 50% of people attending college are taking on debt to finance their education. This includes student loans. Consequently, student loan debt has become a very common feature of divorce cases. However, unlike other forms of debt, like mortgages and credit card debt, even if student loans are taken out during the marriage, they may not be automatically classed as community debt. Instead, student loan debt is more often classed as individual or separate debt, even when funded by community property during a marriage. This is largely due to the idea that educational advancement is to the long-term benefit of the individual, and this benefit will continue to be enjoyed post-divorce.
The rules outlining how student loans should be handled during a divorce are outlined by California Family Code Section 2641. According to this statute, the courts have a certain amount of discretion when it comes to managing student loan debt during a divorce. Because the loans are generally applied only to one person’s educational pursuits, student loans may be identified as separate debt. While making this decision, the courts consider the impact the individual’s education had on the marriage and whether both spouses substantively benefited from advancing the individual’s education.
My Finances Seem Simple; Do I Need a Lawyer?
Yes, if you are going through a divorce, no matter how simple it may seem, you need legal representation from a skilled attorney. Property and debt division are two of the most complicated aspects of a divorce. It is important that you have the support of an experienced lawyer to ensure that you achieve a property and debt division agreement that is fair and equitable.
At Burch Shepard Family Law Group, we have helped countless people through the divorce process. We are experienced in high net worth divorces and divorces with complicated finances. Contact us today to discuss your case.